Struggling MMM takes action to cut costs.
Troubled tanker operator Malaysian Merchant Marine has embarked on round of cost cutting measures, including the disposal of subsidiaries and staff redundancies, after failing to complete the purchase of a chemical tanker that was key to its recovery.
The Kuala Lumpur-listed company confirmed today that its Singapore subsidiary, CM Ram Holdings, and four offshoots including CM Rama and CM Sita, would be sold to Gurudaib Singh for a nominal S$1 ($0.71) per company . The five companies were incorporated last October, although the parent company gave no details of their areas of activity.
Confirming the rationalisation plan, the company said it had ?decided to downsize its operations in all areas to contain operating and administrative overheads?.
The company had already offered all staff ?separation settlement terms? at the end of last week. This came after the board of directors said the viability of the company as a going concern ?in the present capital structure and business model is in serious doubt?.
In a statement to the Malaysian stock exchange, the company said the board of directors would ?deliberate further on the company"s direction with its stakeholders and an appropriate announcement will be made soon?.
The firm"s problems stem from the collapse last week of a deal to acquire a 19,980 dwt double-hulled chemical tanker for $38m from Singapore"s Uniships. Malaysian Merchant Marine forfeited about RM6.7m ($2m) in lost deposits following the failure of the acquisition.
Erayear Solution, a Malaysian Merchant Marine subsidiary, signed a memorandum of agreement with Uniships on January 8 to acquire the vessel which was to be deployed on a new service, dubbed Project Acid.
The Malaysian company said the acquisition ?was the vital part of the company"s turnaround strategy? and ?Project Acid"s revenues were estimated at RM700m ($210.7m)?.
Cash for the purchase was to be provided by a local financial institution which insisted the additional borrowings also had to be approved by Malaysian Merchant Marine"s existing lenders.
These moves coincided with a decision in February by the Malaysian Rating Corporation to downgrade the company"s Al-Bai"Bithaman Ajil Islamic debt securities from A-id to BB+id which caused a default on the company"s other borrowings. The company owed a total of RM24m that was repayable by March 2011.
As Malaysian Merchant Marine tried to appeal against the downgrading and the need to obtain other borrowers consent, Uniships issued a final notice of termination of the contract last week and forfeiture of the deposits paid.
As a further consequence of these problems, the company"s shareholders" equity on a consolidated basis is less than 25% of its issued and paid up capital and is less than RM40m. As a result, the firm has been placed on the Malaysian stock exchange"s financially distressed companies list.
Malaysian Merchant Marine currently operates two chemical tankers, the 1992-built, 3,721 dwt MMM Dayton and the 1990-built, 7,078 dwt MMM Kingston. In the firm"s latest financial results, which covered 19 months between September 2007 and March 31, 2009, the company generated a net profit of just RM153,000 on revenue of RM120.2m.